That is all I could utter as my brain spun listening to an interview with Chamrath Palihapitiya on CNBC last week.
“I don’t see a world in which we have any form of meaningful contraction nor any form of meaningful expansion. We have completely taken away the toolkit of how normal economies should work when we started with QE. I mean, the odds that there’s a recession anymore in any Western country of the world is almost next to impossible now, save a complete financial externality that we can’t forecast.”
It is a fascinating comment particularly at a time where the Federal Reserve has tried, unsuccessfully, to normalize monetary policy by raising interest rates and reducing their balance sheet. However, an almost immediate upheaval in the economy, not to mention reprisal from the Trump Administration, brought those efforts to a halt just a scant few months after they began.
A quick Google search on Chamrath revealed a pretty gruesome story about his tenure as CEO of Social Capital which will likely cease existence soon. However, his commentary was interesting because despite an apparent lack of understanding of how economics works, his thesis is simply that economic cycles are no longer relevant.
This is the quintessential uttering of “this time is different.”
Economists wanting to get rid of recessions is not a new thing.
Emi Nakamura, this years winners of the John Bates Clark Medal honoring economists under 40, stated in an interview that she:
“…wants to tackle some of her fields’ biggest questions such as the causes of recessions and what policy makers can do to avoid them.”
The problem with Central Bankers, economists, and politicians, intervening to eliminate recessions is that while they may successfully extend the normal business cycle for a while, they are most adept at creating a “boom to bust”cycles.
To be sure the last three business cycles (80’s, 90’s and 2000) were extremely long and supported by a massive shift in financial engineering and credit leveraging cycle. The post-Depression recovery and WWII drove the long economic expansion in the 40’s, and the “space race” supported the 60’s. You can see the length of the economic recoveries in the chart below. I have also shown you the subsequent percentage market decline when they ended.
Currently, employment and wage growth is fragile, 1-in-4 Americans are on Government subsidies, and the majority of American’s living paycheck-to-paycheck. This is why Central Banks, globally, are aggressively monetizing debt in order to keep growth from stalling out.
Despite a surging stock market and an economy tied for the longest economic expansion in history, it is also is running at the weakest rate of growth with the highest debt levels…since “The Great Depression.”